You might be wondering why home prices aren’t dropping even though mortgage rates are sky-high. In fact, in many areas, home prices are on the rise! This might seem like a puzzle, but part of the answer lies in the "life goes on" mentality of home buyers.
During the pandemic, many people put their lives on pause for a year or three. Buying a new home seemed too risky with all the uncertainties. So, they kept renting or stayed put in their current homes. The pandemic also caused delays in life events like going to college, getting a graduate degree, moving for a new job, starting a business, proposing to a significant other, having children, having more children, and retiring.
But guess what? Life doesn’t wait for anyone. We can’t put our dreams and desires on hold forever.
After mortgage rates shot up in 2022, the demand for homes plummeted. The second half of 2022 saw one of the slowest home buying seasons on record, and 2023 wasn’t much better. Mortgage rates have come down from their peak of around 7.25%, but they’re still stubbornly high.
The good news is that the Fed plans to cut rates before the end of 2024. But people are getting tired of waiting for lower mortgage rates. There’s a growing pent-up demand. By the time mortgage rates do come down, demand will probably surge.
We’re past the bottom of the real estate cycle, which was around October 2023. With stocks at record highs, unemployment rate still low, and a strong economy, people have decided to stop waiting and buy a home now.
There’s a saying, "date the rate, marry the home." This means that your mortgage rate is temporary, but your home is forever. You can always refinance your mortgage, but you can never change the purchase price of your home. If you miss out on your dream home, you might never get another chance to buy it.
However, be careful not to be too easily influenced by this saying. It’s often used by Realtors to encourage buyers to make a purchase. Always run the numbers before making a decision.
Mortgage rates will most likely decline in the next 12-24 months as inflation is heading back down. If you can afford a temporarily higher mortgage payment, then buying a new home may be a good idea.
At 46, I refuse to wait for good things to happen anymore. I want to create the life that I want, not just let it happen. This is why I left Goldman in 2001 and negotiated a severance in 2012. I didn’t want to wait around to get let go. I wanted to create a life of freedom and adventure sooner.
To build above-average wealth, we must be intentional with our spending, saving, investing, and tracking. We can’t just wing it to millionaire status. We have to work hard for it and take advantage of opportunities.
Human biology doesn’t wait for us to find the right partner before having kids. It becomes harder for women to have children after the age of 35. After age 40, it becomes almost impossible to have children naturally.
Currently, I have the opportunity to upgrade homes at a more reasonable price from 2022. If home prices in two years are significantly higher, I will kick myself because this home may no longer be affordable.
There was a window of opportunity to buy a home in 2023. That window is still open in 2024 BEFORE mortgage rates start coming down precipitously. Once they do, there will be a wave of pent-up demand that will instantly bid up prices to new highs.
A Zonda survey asked why people are buying homes today when mortgage rates are high. 58% said they are buying due to lack of resale supply. Other reasons include relocating, having children, retirement/downsizing, sick of paying rent, marriage, FOMO, divorce, opportunistic, and death. In other words, people are buying homes today because life goes on!
Even though life goes on, you don’t want to irresponsibly buy a home you cannot comfortably afford. It would be counterproductive to buy your dream home only to feel stressed about the payments.
Personally, I decided to buy a new forever home in October 2023. I sold stocks and bonds to pay cash. My kids are only 4 and 6 and I want to provide the best life possible for them while they are still young. I’m not happier that I climbed to the top of the property ladder. But I do feel more satisfied as a father. That counts for something!
Are you surprised by the strength of home prices despite a surge in mortgage rates? Do you agree a big reason why home prices continue to go up is due to a “life goes on” mentality where people are tired of waiting for mortgage rates to come down? What are some other reasons why home prices are continuing to increase?
If you’re looking to buy physical property, you might want to consider owning real estate online to ride the price changes. Check out Fundrise. Fundrise primarily invests in residential real estate in the Sunbelt, where valuations are cheaper and rental yields are higher. The real estate firm currently manages over $3.5 billion with over 500,000 investors.
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